To give you an idea of its political leanings, Obama won 72 percent of the vote in Montgomery County in 2008 and all nine members of the County Council are Democrats.

So you wouldn’t think this is a place where lawmakers ever have anything sensible to say about tax policy. But, lo and behold, one Councilman recognizes that there’s no Berlin Wall surrounding the County. As such, higher tax rates may not generated additional tax revenue if people vote with their feet.

You can listen to George Leventhal by clicking here, but here’s the relevant quote.

Secret Cato supporter?

We may be reaching a tipping point with tax rates. There’s a point beyond which you can keep raising the tax rates, but you won’t get more revenue because if people leave the county or if new businesses don’t start you’re not getting new revenue.

For the uninitiated, Leventhal is talking about…gasp…the Laffer Curve.

Folks like Paul Krugman would like you to believe that the Laffer Curve is a twisted fantasy concocted by stooges for the rich. He writes that it is “junk economics” to consider the relationship between tax rates, taxable income, and tax revenue.

In the real world, though, at least some left-leaning lawmakers realize that higher tax rates backfire if the geese that lay the golden eggs fly away (as has happened in Italy, France, and the United Kingdom).

Maybe we can take up a collection and hire Mr. Leventhal to do a bit of economics tutoring for a certain Nobel laureate?

P.S. Just in case you’re not convinced by the experiences of a local politician, there is lots of empirical evidence for the Laffer Curve.

5 Responses

That’s blasphemy for the MD Democratic party! I’m betting he’ll be getting a lecture (the Corey Booker treament) from “Das Party” that he’s not to speak against party philosphy and to retract his comments.

In anything but the short term it is growth rate that matters. Growth rate is the dominant factor that dwarfs everything else when it comes to anything but very short term prosperity. And growth rate depends on motivation to work by both rich and poor and regulatory obstacles to creation and personal benefit from one’s work. And motivation to work decreases by both rich and poor as the rewards of the exceptional are haircut to insulate the less productive from the consequences of mediocrity I.e. flatter effort-reward curves.

Lower growth rates, perpetually compounding eventually reach and depress everything, taxable income, tax revenue, prosperity, standard of living. The only question remains how long does a culture maintain this ever deepening decline before it cries uncle ( after having tried all possible methods to get an ever shrinking number of exceptional people to pay an ever fairer share).

In this early 21st century, any country whose people lack the motivation and economic freedom to growany at least 5% (the world average) has set its economy on a relentlessly compounding decline path relative to the rest of the world. What are the chances of achieving that under the flattening effort-reward curves of HopNChange? Nil, I.e. about the same as getting naive Americans to understand what made them most prosperous country in the world during the last two centuries.

The fundamental forces of economics are not as complicated as they are portrayed by those who would rather the public missed the forest for the trees of economic jargon and second order minutiae.